NCERT MOST IMPORTANT QUESTIONS CLASS – 11 | Business Studies IMPORTANT QUESTIONS | CHAPTER – 3 Private, Public and Global Enterprises | EDUGROWN |

NCERT Most important question:

Question 1.
What are the major objectives of public enterprises?
Answer:
Public enterprises are guided by several socio-economic and political objectives.

Importance/Need/Objectives of Public Enterprises: Public enterprises have got the following motives:
1. Economic Motive/Objectives:
(a) Availability of essential commodities of life in sufficient quantity at cheaper rates: These industries aim at supplying essential commodities at cheaper rates to the people. Mother Daily and Delhi Milk Scheme in Delhi are its examples. Water, electricity, and gas supply are also in this category.

(b) Establishment of basic industries: In order to accelerate the pace of economic growth, basic industries are a must. These industries require heavy expenditure and Carry a lot of risks. This is why private entrepreneurs hesitate in establishing basic industries. These industries are iron and steel, locomotives, aircraft, and ship-building, etc.

(c) Balanced regional development: Private industries are not keen to set up industries in remote and backward regions due to a lack of facilities and infrastructure. It leads to the haphazard and unbalanced development of the country. Public enterprises aim at balanced regional development of the country in addition to their economic motive.

2. Social Motive: Involvement of the government in these enterprises is because of the social welfare of the people. Satisfying the basic needs of the people at cheaper rates shows the social motive of these enterprises. They help to check malpractices on the part of private entrepreneurs.

3. Political Motive: Ministers, Members of Parliament and Legislative Assemblies try to establish a public enterprise in their constituencies for political gain This results in the growth of the area, and the states of the politician, and thus political motive is achieved and regional imbalance takes place.

4. Reduced wasteful expenditures: Wasteful expenditures can be reduced with the nationalization of industries, because under private ownership company may not be managed efficiently, so expenditures of 11 that company may be excessive. Therefore, there is a need b nationalization.

5. Self-Reliance: These enterprises save valuable foreign exchange through import substitution In addition, public sector enterprises export goods on a large scale to attain the goal of economic self-reliance.

6. Infrastructure: Transport, communication, irrigation, power, etc. can be developed only on large scale, with huge resources but a private owner cannot have huge resources. So there should be a nationalization of infrastructure.

Question 2.
Differentiate between Private and Public Sector Enterprises.
Answer:
Difference between Private and Public Sector Enterprises:

Basis	Private Sector Enterprise	Public Sector Enterprise
1. Ownership	It is owned and controlled by private individuals.	It is owned and controlled by the Central or State Govt
2. Profit motive	The profit motive is very important and essential for its survival.	The profit motive is not the main guiding factor. It serves social objectives as well.
3. Purpose	The motivating factor is to earn profits.	Its main objective is to promote public welfare.
4. Social Objectives	Social objectives are not seriously undertaken.	It is guided by social objectives like the development of backward regions, the creation of employment, and the equitable distribution of wealth.
5. Efficiency	Quick decision-making promotes efficiency.	Decision-making is not fast. There is red-tapism. bureaucratic control has reduced its efficiency.
6, Government Control	It is not subject to strict financial control by the Government	It is subject to strict financial control by the Government.
7, Management	It is managed by professional managers.	It is managed mostly by Government officials.
8. Public Accountability	It is accountable to the owners.	It is accountable to the public through Parliament.

Question 3.
Mention, in brief, the significant features/characteristics of Global Corporations.
Answer:
Features of Global Corporation: The important features of most multinational corporations are as under:
1. Giant-Size: The assets and sales of MNCs run into billions of dollars and they make huge profits through their operations. For example, the physical assets of IBM are worth around 8 billion dollars. The sales turnover of some global corporations exceeds the gross national product of several developing countries.

2. International Operations: An MNC operates in many countries through a parent corporation in the home country. It runs its operations through a network of branches, subsidiaries, and affiliates in host countries. Production, marketing, and other operations are scattered in different countries to get the economies of local operations.

3. Centralized Control: An MNC has its headquarters in the home country in order to control the branches and subsidiaries. The local management of branches and subsidiaries operate within the policy framework of the parent corporation. This is possible due to the fact the parent-company holds40% to 100% of the equity of the subsidiary company.

4. Oligopolistic Power: Many multinational corporations enjoy oligopolistic power. They occupy a dominant position in the market. Through the process of merger and takeover of other firms, an MNC may acquire a huge economic power. This makes it oligopolistic in character because of which it has a dominant position in the market. For example, Hindustan Lever Limited acquired Tata Oil Mills to improve its market shares.

5. Collective Transfer of Resources: A multinational corporation facilitates a multilateral transfer of resources. Such transfer takes place in the form of a” package” which includes technical know-how, machinery, and equipment, raw materials, management expertise, etc.

6. Professional Management: These corporations employ professional skills, specialized knowledge, and training. These managers have specialized training and skills in different functional areas like finance, marketing, and human resources.

7. International Market: MNCs have access to international markets as a result of vast resources and superior marketing skills. Because of this, MNCs are in a position to sell whatever products they manufacture in different countries throughout the world.

Question 4.
Explain the term Foreign Collaboration in brief.
Answer:
Foreign Collaboration: Enterprises having equity participation V of foreign units is known as foreign collaboration. It is an enterprise jointly owned, managed, and controlled by Indians and foreigners. These enterprises are enjoying the vast resources of the country and abroad. It combines the financial resources and managerial and technological expertise of two or more countries.

The amount of profit is shared ( between the Indian owner and the foreign partner. The government these days has liberalized its policies regarding foreign participation in Indian i: enterprises. According to New Industrial Policy, 1999 approval will be given for direct foreign investment up to 51% equity in high priority industries and automatic permission will be given to foreign technology agreements in identified high priority industries.

Question 5.
What do you mean by the term “Disinvestment of Shares”?
Answer:
Disinvestment of Shares-The major plank of the privatization program in India has been the disinvestment of government shareholdings in a select number of public enterprises. The rationale behind this program is to raise a non-inflationary form of finance for the budget.

The program commenced in 1991-92 and till 1995-96 the „ government had disinvested a part of its equity in 40 public sector enterprises and had raised an amount of Rs. 10,915 crore through the various rounds of disinvestment undertaken between this period. The shares were offered to financial institutions, mutual funds, private sector enterprises, and the general public as well.

The Union Government constituted Disinvestment Commission in August 1996 to advise it on the disinvestment program of public sector enterprises. The government referred 40 public sector undertakings to the Commission for advice about disinvestment. The government has now been taking steps to implement the report of the Disinvestment Commission.

To ensure transparency in the Disinvestment program, bids are invited for the sale of shares of selected public enterprises and the shares are sold to the highest bidder. During 2000-01, the Government raised Rs. 1,869 crores through disinvestment in public undertakings as compared to Rs. 1,829 crores during 1999-2000 and Rs. 5,371 crores during 1998-99. The target of disinvestment for the year 2002-03 was Rs. 0 crores.

Question 6.
What is Departmental Undertaking? Mention its advantages and disadvantages.
Answer:
Departmental Undertaking – It works as the ministry or a department of the government. The budget of these departmental organizations is presented to the parliament just like other ministries. Indian Railways and Post and Telegraph departments are its examples.

Departmental organizations are entirely owned and controlled by either the Central Government or by a State Government.

Advantages of Departmental Undertaking: Departmental organization enjoy the following merits:
1. Service Motive: These enterprises are formed with a service motive. Public interest and social welfare hold priority for them. These undertakings also help to reduce the burden of tax on the public.

2. National Importance: Activities that have got national importance are performed by these departmental organizations. The risk of misuse of public money minimized due to strict budget, accounting, and audit.

3. Secrecy: These organizations are capable of maintaining secrecy. because these are under the control of the government. The government can avoid disclosure of facts on the plea of public interest.

4. Proper Management: These enterprises are managed by qualified government staff. Their work is systematic. They are properly v managed and supervised. Such control and management keep the government official alert.

Disadvantages of Departmental Undertaking – Departmental organization suffer from the following disadvantages:
1. Least profit earning venture: Departmental organization is owned and controlled by the government. It is formed with a service motive, so it does not remain an excellent profit earning venture.

2. Red tape: Employees follow the beaten track. They do not take much interest in the work. They are careless and bother much for their salaries. Officers worry much for their status and respect. Decisions are generally delayed due to bureaucratic procedures and political considerations.

3. Lack of competent workers: Government employees are not much efficient in business affairs. They have sufficient administrative experience but not experienced enough to manage the activities of, the enterprise. Promotion to the higher rank is based upon seniority, so competent employees are not recruited.

4. Political evils: Every important decision in the departmental organization has a political motive. It is managed and controlled by the minister, who is the representative of a political party. The minister has to look after the interest of his party.

5. Lack of competition: Generally departmental organizations have the status of monopoly. Lack of competition makes them incompetent. In the absence of competition and profit motive, there is little incentive for hard work and efficiency. There is hardly any link between reward and performance.

Question 7.
What are statutory/public corporations? Present their advantages and disadvantages.
Answer:
Statutory/Public Corporations: Public corporations are; formedbythespecialactofParliamentorLegislativeAssemblies. Their existence is separate from the government. This is why these corporations are called autonomous bodies. Though these corporations are independent in financial matters, even then they remain under the control of the government. It is an autonomous body fully financed by the government.

AccordingtoMorrison, “Public corporation is a combination of public ownership, public accountability, and business management for the public end.” Examples of such corporations are Air India, Life Insurance Corporation of India, etc.

Merits/Advantages of Statutory Corporations – Public corporations enjoy the following merits:
1. Free from government control: These are autonomous bodies, which are not under the direct control of the government.

2. Service motive: These corporations are also formed in the public interest for social welfare like other public enterprises. Service motive dominates their activities.

3. Independent decision: Public corporations are independent in making their own decisions, policies, and plans.

4. Efficient management: These corporations are benefited from efficient management because they are managed by a competent board of directors, who are professional in their attitude and work. As changes in government do not affect its stability, it can take long term policy decisions.

5. Economic self-independence: Public corporations are financially independent. They have to arrange their own finances. It is free from political interference by ministers and bureaucrats.

Demerits/Disadvantages of Statutory Corporations – Public corporations have got the following disadvantages:

1. Red Tape: Like other public enterprises and government departments public corporations are also victims of red-tapism.
2. Rigid structure: The constitution of such a corporation is rigid. The objects and powers of such corporations cannot be changed without amending the statute, which is a time-consuming and cumbersome process.
3. Theoretical autonomy: The autonomy of these corporations exist only on paper. In actual practice, interference by political bosses and ministers gives the wrong signal to their autonomy. Red-tapism and bureaucratic control reduce the flexibility of operations.

Question 8.
What is a Government Company? Define its merits and demerits.
Answer:
Government Company – A Government company is a company in Which not less than 51 percent of paid-up capital is held by the Central Government or State Government jointly by both Governments. It is formed and registered under the Companies Act 1956.

Merits of a Government Company: A government company enjoys the following benefits:
1. Internal autonomy: A government company is a separate entity and so can manage its affairs on its own. There is the absence of direction. parliamentary and ministerial control. Thus, it is an autonomous body. It can be operated on commercial principles. It can manage its affairs independently.

2. Flexibility in operations: It can be operated on commercial principles because of independence in respect of internal management, finance, and appointment of person.

3. Collaboration: It is the only form of organization by which the Government can make use of managerial skill, technical know-how, and expertise of the private sector.

4. Easy formation: It is relatively easy to form a government company as no statute is required to be enacted. It can be created by the executive decision of the Government.

5. Expert management: Since the annual report on the working of the enterprise is placed before the Parliament or the State Legislature, the management of a government company tends to be cautious, and efficient to avoid its criticism.

6. Sound management policies: It cannot afford to follow unsound policies because its working can be compared with similar companies in the private sector.

Demerits of a Government Company-The government companies usually suffer from the following weaknesses:
1. Board composed with yes men: The Board of Directors of a government company usually consists of politicians and civil servants which may not be able to follow sound business principles.

2. Theoretical autonomy: The independent character of a government company exists in paper only. Government officials, ministers, and politicians often interfere with its work.

3. Lacking responsibilities: A government company evades the constitutional responsibilities which other state enterprises owe to the Parliament. The Parliament is not, taken into confidence for its creation as government decision is sufficient in this regard. The accounts of a government company need not be audited by the Comptroller and Auditor General of India. Thus, it concentrates more power in the hands of the Government than a statutory corporation.

4. The practice of forming government companies has been regarded as a fraud on the Companies Act because the Government is empowered to specify the provisions of the Company Act to be followed or applied and modifications if any.

Question 9.
Present a comparative view of different forms of public enterprises.
Answer:
A comparative view of different forms of Public Enterprises:

Basis of comparison	Departmental Organisation	Statutory Corporation	Government Company
1. Formation	It is formed by a Ministry Concerned.	Formed by Special Act of Parliament or State Legislature	It is established Under the Companies Act by a Ministry with or without private sector participation.
2. Ownership	The departmental organization is wholly under Government Department.	It is wholly owned by the Government Central or State.	At least 51 percent of paid-up share capital owned by the Government.
3. Legal Status	No separate entity is distinct from the Government Department.	It enjoys a separate legal entity.	Separate legal entity as per Companies Act 1956.
4. Control /Management	Control vested with Government officials from the Ministry concerned.	Control is exercised by the Nominated Board of Directors.	Board of Directors as required under Companies Act 1956.
5. Staffing System	Staff mainly consists of Civil Servants- Govt. Service	It is managed by professionals under a contract of service (not Govt. Service)	Managed by professionals under a contract of service (not Govt. Service)
6. Financing	Budgetary allocation, can’t borrow from the general public.	Separate arrangements can borrow also.	Separate arrangements can borrow also.
7. Autonomy	It enjoys no autonomy. Sufficient autonomy.	Govt does not interfere in day-to-day affairs.	Sufficient autonomy Government does not interfere so much in operations.
8. Public Accountability (Parliamentary control)	Highest	Higher	High accountability for investors and creditors.
9. Suitability	The public utility, defense, etc.	Industrial and Commercial Undertakings,	Industrial and Commercial undertakings, providing for the participation of domestic and foreign private capital.

Question 10.
The role of the public sector is not satisfactory. What are the suggestions for improvement in public sector operations?
Answer:
Suggestions for the improvement of Public enterprises- In order to make public sector enterprises more efficient and prone to public welfare the government set up various committees from time to time. Some important committees set up by the government are as under:

Name of Committee	Year of Inception of Committee/Commission
(1) Chagla Commission	1958
(2) Krishna Mohan Gupta Committee	1959
(3) Administrative Reforms Committee	—
(4) F. Mohammad Committee	1980
(5) Arjunsen Gupta Committee	1998